PREVIEW-Pilgrimage to see Warren Buffett out of step with populist mood

Published Wed, May 1 2019 7:00 AM EDT

Trevor Hunnicutt and Jonathan Stempel

May 1 (Reuters) - When Warren Buffett takes the stage at Berkshire Hathaway Inc's shareholders' meeting on Saturday, the 88-year-old billionaire will be greeted, as usual, by tens of thousands of adoring followers from around the world.

Yet the Berkshire chairman and chief executive officer's optimism about the state of capitalism, a likely theme as he and Vice Chairman Charlie Munger field questions for five hours, may appear out of touch with the rise of populism in his country.

Buffett's endorsements of corporate stock buybacks, the much-criticized longtime Berkshire holding Wells Fargo, and employer-focused attempts to reform healthcare put the Oracle of Omaha at odds with the drive among some Americans to tackle income inequality using root-and-branch reforms.

Many announced Democratic presidential candidates for 2020 have endorsed such measures as government-sponsored healthcare and the reining in of big banks, policies that might seem antithetical to Buffett's Omaha, Nebraska-based conglomerate.

Indeed, Berkshire's mélange of businesses, such as the utilities MidAmerican Energy and PacifiCorp, parts and equipment makers Marmon and Precision Castparts, and food distributor McLane appear more aligned with Republican President Donald Trump's industrial vision for America.

Trump in 2016 defeated Buffett-backed Democrat Hillary Clinton for the White House and championed an American manufacturing and rural economic renaissance, especially in its "heartland" where voters provided some of his strongest support.

Now, even some of the strong American brands Buffett bet on being immune to competition are struggling.

One such investment, Kraft Heinz Co, has lost more than half its value over two years as consumers moved to foods perceived to be more healthy or natural.

"The businesses aren't necessarily bad, but the brands that were a part of the moat - the reason for the acquisition - are less prominent," said Meyer Shields, an analyst at Keefe, Bruyette & Woods. "That's a concern."

BERKSHIRE LAGS S&P 500

Investors appear to have noticed.

Berkshire's stock price, which Buffett called the best measure of how the business is doing, has through Tuesday risen 6 percent this year, compared with a 18-percent rise in the S&P 500 index, including dividends.

Buffett's assistant did not respond to an emailed request for comment.

None of this, however, will stop Buffett's fans from descending on Omaha this weekend.

Events will be held around the city, and people can buy mementos such as postage stamps featuring Buffett and Munger or, for $8,950, a pair of 2 carat-weight diamond stud earrings from Berkshire's Borsheims jewelry unit.

Buffett's career of investing success and down-to-earth public persona are part of the draw.

He has used his popularity to attract long-term shareholders and lend goodwill and credibility to his business dealings.

This included lucrative investments at the depths of the 2008 financial crisis, when he provided financing to such companies as General Electric, Goldman Sachs and Harley-Davidson.

DOMINANT STAKES

Some policies endorsed from political left could weigh on Berkshire, though they could be dead-on-arrival in the face of a Trump White House and Republican-controlled U.S. Senate.

For example, some research shows that when big investors hold large stakes in multiple companies in the same industry, it might reduce the incentive for those companies to compete, boosting prices and reducing service for consumers.

Those "common ownership" arguments have drawn the attention of U.S. regulators, including the Securities and Exchange Commission and Federal Trade Commission, the latter of which held hearings on the subject last year.

Berkshire owns multibillion-dollar stakes in six of the largest U.S. banks plus American Express. It also owns close to 10 percent of American, Delta and Southwest airlines, and more than 8 percent of another carrier, United Continental.

"Investors like Warren Buffett - no one seems to have any data about how much does he get involved in corporate governance," said Martin Schmalz, associate professor of finance at Oxford University's Saïd Business School, who has done research on common ownership. "The theory says he does not aggressively push firms to compete more aggressively."

Meanwhile, proposals to expand Medicare come as Berkshire plows ahead on its Haven joint venture with Amazon.com and JPMorgan Chase to cut healthcare costs for employees at those companies.

Buffett also said in February that Berkshire was likely to become a "significant" buyer of its own stock, especially if it extended its three-year drought for major acquisitions.

Some lawmakers have proposed restricting buybacks unless companies commit to paying their workers more. Berkshire employs more than 389,000 people.

All of this comes as Buffett's advanced age highlights the need for investors to assess Berkshire once Buffett is gone.

Buffett has shed many of his non-Berkshire roles, including sitting on outside boards and hosting college students in Omaha.

He also ceded day-to-day oversight of Berkshire's businesses in Jan. 2018 to Vice Chairmen Greg Abel and Ajit Jain, each considered a possible successor as CEO.

(Reporting by Trevor Hunnicutt and Jonathan Stempel in New York; Editing by Jennifer Ablan and Nick Zieminski)